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Posted: **May 26th, 2006, 1:25 pm**

Hi all, I got a question about Himalayan option with global floor: max(average return, 0). The inituition is that the higher the correlation between your underlyings, the higher the price. This is true only if the underlyings have the same drift.. I tried it with different drifts for each underlying and I actually got a lower price. (ie a 0.75 corr has a higher price than a 0.99 corr).. I can't think of the intution.. Anyone has any insight??Thanks a lot!- chichi

Posted: **May 26th, 2006, 1:52 pm**

I do agree with your intuition, let's say you take only two stocks and two different correlations : -1 and +1 :if correl = -1 then avg return=0 and price = 0if correl = +1 then avg return = either -r or +r and price =r/2 roughly...There must be something wrong with your simulation then i believe...

Posted: **May 26th, 2006, 2:08 pm**

Like I got it for same drift.. higher correlation -> higher price.. but only if I have different drift for each underlying.. then I don't have it any more.. (I understand at the end of the day, I'm putting in riskfree for the drift.. but just curious...

Posted: **May 27th, 2006, 1:44 pm**

Does anyone know how to hedge this product by the way? (Or any paper regarding hedging for mountain range product?Thanks!

Posted: **May 30th, 2006, 3:51 pm**

Posted: **May 31st, 2006, 10:20 am**

Does anyone know how many stocks are typically involved in a Himalayan Option ?

Posted: **June 1st, 2006, 2:39 pm**

I'm interested in the number of stocks involved in the contract because if there isn't too many ( say less than 10 ) then I can see a way of making the pay off continuous without causing any computational problems. A continous pay off may be of interest to someone trying to hedge the Himalayan ?